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Yahoo Dithers On

Posted on Thursday, Apr 24th 2008

Is Ballmer really threatening to pull back from the Yahoo deal? Of course not. Nonetheless, the media has to play along with this charade, knowing fully well that Yahoo’s destiny was sealed the day Microsoft made the first advance.

Meanwhile, Yahoo’s (YHOO) Q1 performance exceeded market expectations marginally. Revenues ex TAC were up 14% over the previous year to $1.352 billion beating the street’s view of $1.3 billion. EPS for the quarter of $0.11 reported an increase over the previous year by 10% and beat market expectations of $0.09.

Marketing Services generated $1.107 billion for the quarter recording a 13% increase over the previous year and Fees revenue contributed $0.245 billion, recording a 21% increase over the previous year. Owned and operated (O&O) marketing services revenue was up 15% over last year with O&O search up 16% and O&O display up 15%.

Region wise, revenues from the U.S. increased 17% year over year and the rest of the world reported revenue increase of 7% over the year.

For the year, Yahoo is projecting GAAP revenue of $7.2 – $8.0 billion and have increased their operating cash flow guidance to $1.775 – $2.025 billion. For Q2, they are projecting GAAP revenue in the range of $1.730 – $1.930 billion. They expect TAC as a percentage of GAAP revenue to be around 26%. They expect operating cash flows for Q2 to be in the range of $0.425 – $0.475 billion.

Jerry Yang wanted Yahoo! to be the starting point of people’s days. So far, Yahoo remains the leading property in the U.S., reaching nearly 75% of all Americans online. My Yahoo! does not have competition.

Yahoo has implemented three strategic changes in the quarter.

First, they enhanced focus on some of their key properties. For instance, on Flickr, they added video capability. Second, they enabled third party developers of content to have access to their properties and the more than 500 million unique users. Finally, they are now facilitating social connections across key Yahoo! properties. By linking their users’ favorite destinations and content with their friends, families, and communities, they are expecting to deliver better relevance by being able to leverage information from other social experiences across the web. Bunch of verbiage that I don’t fully understand myself, and is reflective of the confusion in Jerry Yang’s mind. Really Jerry, it is time to stop the farce.

Yahoo’s turnaround strategy, on which I have commented endlessly, remains the same in my mind. They can be the jewel of Web 3.0. But for that, they need to first understand the Web 3.0 dynamics: Verticalization, Vertical Search, Vertical Ad Networks, and Vertical Personalization. [Microsoft gets it, I think.]

Yahoo continues to focus on wanting to position themselves as a horizontal search engine, much against my liking. They have deployed open search and are getting into innovations in mobile search with voice activated search. Panama continued to make some progress with improvements in search relevance, click through rates and user experience. In the U.S., O&O RPS was up 10% and GAAP O&O search revenue was up about 20%. In international O&O, we also saw good RPS gains of roughly 15%. Nonetheless, I just don’t think that is the way for them to go.

During the quarter, they acquired Maven Networks to become a leading video advertising solution provider, yet another haphazard strategy.

Yahoo’s results did not have an impact on its stock price. The stock is now trading at $27.50 levels.

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